Section 240 of the Income Tax Act, 1961: Refund on Appeal and Other Proceedings
Section 240 provides for an income tax refund arising from an appellate order or another proceeding without requiring the taxpayer to submit a separate refund claim. The corresponding provision in the Income-tax Act, 2025 is Section 435.
What does Section 240 mean?
When an appeal, revision, rectification or other proceeding under the applicable income tax law results in an amount becoming refundable, the Assessing Officer must, subject to other statutory provisions, issue the refund without insisting upon a fresh claim from the assessee. The provision does not mean that every favourable appellate order immediately creates a payable refund: the order must actually result in an amount becoming due.
Section 240: Explanation of the statutory provision
General rule: Refund without a separate claim
If a refund becomes due as a result of an appellate order or another proceeding under the 1961 Act, the Assessing Officer is required to refund that amount without the assessee making a separate claim, except as otherwise provided by law.
Proviso (a): Assessment set aside or cancelled
If the appellate order sets aside or cancels the assessment and directs a fresh assessment, any refund becomes due only when the fresh assessment is made.
Proviso (b): Assessment annulled
If the assessment is annulled, the refund is limited to tax paid in excess of the tax chargeable on the total income returned by the assessee.
This is an explanatory restatement. Read the exact statutory wording in the official Income Tax Department text of Section 240.
Section 435 of the Income-tax Act, 2025
Section 435 carries forward the rule on refunds arising from appeal or other proceedings. Sub-section (1) deals with refunds without a separate claim. Sub-section (2)(a) postpones refund entitlement where a fresh assessment is directed, while sub-section (2)(b) deals with the amount refundable on annulment of an assessment. The wording is reorganised but follows the same basic approach as Section 240.
For the 2025 Act, consult the official legislative text containing Section 435 and check the enacted Act and subsequent amendments before relying on a particular provision.
Practical examples
Appeal reduces assessed tax
Suppose an appellate authority deletes an addition and the tax already paid exceeds the recomputed liability. The excess can become refundable following implementation of the appellate order, subject to applicable statutory adjustments.
Fresh assessment is ordered
Where an assessment is set aside and a fresh assessment is required, the refund does not become due merely because the earlier assessment was set aside. The result of the fresh assessment determines the refund, if any.
Assessment is annulled
Annulment does not automatically require refund of every rupee previously paid. The special rule compares the tax paid with the tax chargeable on the total income returned by the assessee.
Interest, adjustment and withholding of refunds
Section 244A of the 1961 Act deals with interest on refunds for applicable assessment years. Section 245 deals with set-off and withholding in specified cases. These provisions may affect the amount and timing of payment. Interest entitlement, exclusions and computation depend on the relevant statutory provisions and facts; a refund under Section 240 does not by itself establish a fixed interest amount.
What should a taxpayer do after winning an appeal?
- Obtain the signed appellate or other relevant order and check the relief granted.
- Review the tax computation and credits for the relevant assessment year.
- Check whether the order has been given effect and whether the refund appears on the official income tax portal.
- If the refund remains pending, submit a grievance or appropriate representation with the order and supporting documents, even though Section 240 does not require a separate refund claim.
- Review any proposed set-off, withholding or interest calculation under the applicable law.
Official portal: Income Tax e-Filing Portal.
Frequently asked questions
Is a separate refund application required after a successful appeal?
Ordinarily no. Section 240 requires the Assessing Officer to issue a refund becoming due from the order without a separate claim, subject to the Act.
Is a refund immediately payable when an assessment is set aside?
Not where a fresh assessment is directed. In that case the refund, if any, becomes due on making the fresh assessment.
Does Section 240 still matter after 1 April 2026?
Yes, for cases continuing under the 1961 Act pursuant to applicable transitional and savings provisions. Section 435 applies under the 2025 Act.
Official legal references
Income Tax Department - Section 240, Income-tax Act, 1961
Income Tax Department - 2025 legislative text (Section 435)
Income Tax Department - Section 245, set-off and withholding
Updated 27 October 2026. This article provides general legal information and is not a substitute for advice on individual proceedings.